What populists don't understand about tariffs (but economists do) (PIIE)
Kimberly Clausing and Maurice Obstfeld
October 1, 2024
Simply put, protectionism reduces the gains from trade; we choose to pay more than necessary for some goods (imports and their domestic substitutes) instead of focusing on those goods that we produce more efficiently than foreigners.
These negative effects would be even larger under Trump’s proposed universal tariffs, which would hit a wider range of production inputs. What is needed instead is a redesign of the US social safety net,(link is external) and a strengthening of US fundamentals, including public investments in infrastructure, research, and people.
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